Fund Managers’ Risk Appetite at Highest Level Since April 2006

Institutional investors are increasingly optimistic about the markets and the economy, the Bank of America Merrill Lynch found in its October survey of fund managers. In fact, their risk appetite is at the highest point in three years.

Only 35% think that a global recession is possible in the next 12 months, down from 53% in September. Seventy-two percent believe the outlook for corporate profits will improve in the next year, up from 68% a month earlier.

The fund managers also said their cash positions are at their lowest level since January 2004, with a net 7% underweight cash, compared to a net 10% overweight cash in September. A net 38% are overweight equities, up from 27% in September.

Technology, energy, materials and industrials are the favored sectors for asset allocators in October, with investors still shying away from financial stocks.

“Equities remain in a sweet spot. Fears of a double-dip have receded, while worries about inflation and monetary tightening are not imminent enough to prevent an October surge in risk appetite,” said Michael Hartnett, chief global equity strategist at BoA Merrill Lynch Global Research.

Thirty-nine percent of panelists think global profits will rise by at least 10% in the next 12 months, up from 25% who said so in September. Thirty-percent see European equities as undervalued relative to other regions, and 49% think China’s economy will strengthen in the next 12 months.

BoA Merrill Lynch surveyed 229 fund managers in early October.